Cardinal Joseph Ratzinger has been elected as the pope - the head of the world's 1.1 billion Roman Catholics.
Taking the name Pope Benedict XVI, the 78-year-old German appeared on the balcony of the Vatican palace.
His arrival was greeted by loud cheers from the many thousands of pilgrims who had packed St Peter's Square as news of his election spread across Rome.
He was chosen on the third round of votes by the 115 cardinals meeting to select Pope John Paul II's successor.
Giving a short address to the crowds below the new pope paid homage to his predecessor, and great friend, Pope John Paul II saying:
"Dear brothers and sisters after the great Pope, John Paul II, the cardinals have elected me, a simple and humble worker in the Lord's vineyard."
"The fact that the Lord can work and act even with insufficient means consoles me, and above all I entrust myself to your prayers" he added.
Clad in white papal vestments and a short red cape, he then delivered the traditional "Urbi et Orbi" blessing to the city of Rome and the world.
The new Pope was widely tipped to be one of the front runners in the election, which began on Monday when the 115 voting cardinals were sequestered in the Sistine Chapel for their secret conclave.
Cardinal Ratzinger was born in Bavaria, Germany.
The BBC's Ray Furlong in Berlin said Cardinal Ratzinger's election as pope would generate amazement and enthusiasm in Germany as well as concern among those who had hoped for a more liberal pontiff.